An employee of the one of the major Lichtenstein banks recently sold details of all their account holders to the German and UK tax authorities. Employees of various Swiss banks have done something similar. I can imagine it’s very lucrative work. On top of that, the US and the UK have persuaded the Swiss authorities to roll back their banking secrecy and allow details of account holders to be passed to them, while many Offshore Financial Centres (OFCs) have signed Tax Information Exchange Agreements (TIEAs) with onshore countries. Those OFCs controlled by any European Union country now automatically exchange details of accounts earning income with the home country of the account holder.
What this means, essentially, is that onshore countries now have a legal means to obtain information about any offshore account or offshore trust or company structure. If they do not have a legal means, then it seems they are quite prepared to purchase the information from a thief. What has happened to reach this situation? What has happened to the right to privacy and banking secrecy?
Some might say that it kicked off in 1996, when the OECD commissioned a report which was delivered in 1998 and listed all “tax havens” which engaged in “harmful tax competition”. The OECD threatened these tax havens with all sorts of unpleasant stuff because their low tax rates attracted investment away from the OECD member states. The implication was that anybody who had a tax rate lower than the OECD norm were being unfair. Another source of irritation was that the OFCs wouldn’t reveal who was doing what in their jurisdiction.
Many argued that nations shouldn’t be trying to dictate tax rates to others, and in 2001 Paul O’Neill, the then US treasury secretary, put a big dent in the project by stating: “The United States does not support efforts to dictate to any country what its own tax rates or tax system should be, and will not participate in any initiative to harmonise world tax systems. The US simply has no interest in stifling the competition that forces governments – like businesses – to create efficiencies…The work… must be refocused on the core element that is our common goal: the need for countries to be able to obtain specific information from other countries upon request in order to prevent the illegal evasion of their tax laws by the dishonest few.”
But the illegal tax evasion he was referring to doesn’t take place offshore. There is nothing to stop someone setting up an offshore company or trust. That person may well have an obligation to report the existence of that company or trust on their home tax form and their home laws may well attribute the undistributed profits within that structure to them and trigger a tax charge. If so, a simple offshore structure will not achieve any tax advantage provided the correct reporting is made.
